Global aviation deal seen as long-term carbon market boost

An aeroplane flies underneath the jet stream of another aircraft above the Italian city of Padova September 18, 2013.David Gray

MONTREAL (Reuters) - A new global pollution deal for aviation is seen providing a long-term boost for carbon markets by generating demand for environmental offset projects that now often sell at rock-bottom prices, according to industry groups and analysts.

The carbon offsetting scheme, the first such industry-wide initiative, will start in 2021 with at least 65 participating countries in its voluntary phases, following the deal's approval on Thursday by the International Civil Aviation Organization, a U.N. agency.

"It should be a great boost for carbon credit markets in general," said Dirk Forrister, ‎Chief Executive of the International Emissions Trading Association. "I would expect pricing to respond to this increase in demand."

He said carbon credits now sell for as little as 40 cents a tonne, but can rise to $10 a tonne depending on the quality of the carbon-emission reduction project, which can range from efforts to counter deforestation, to more efficient stoves.

Carbon market analysts estimate demand will rise closer to the deal's mandatory phase in 2027, but the completion of ICAO's eligibility rules for credits in 2018 could prompt earlier purchases by airlines.

“Should there be sufficient purchasing activity I suppose prices for voluntary standards may increase,” said Maria Kolos, a carbon markets analyst for Thomson Reuters Point Carbon.

To meet the industry's own goal of capping aviation pollution at 2020 levels, airlines would have to offset more than 3 billion tonnes of carbon emissions between 2021 and 2035 by buying designated credits set up through the private sector, governments and the United Nations.

It is not yet clear which carbon credit projects would be available for purchase by airlines.

The deal has run into criticism from European lawmakers for pursuing carbon neutral growth as opposed to emissions reduction.

ICAO president Olumuyiwa Benard Aliu told reporters the agency will now lead work to come up with criteria on how to select eligible projects, to verify their efficiency in reducing carbon emissions and to address concerns of double counting. An airline would not be able to use the same carbon credit to comply both with the deal and any separate offsets programs.

The deal's success hinges on that criteria, environmentalists say.

"There is a lot of work to be done to regulate the quality of credits allowed in this system," said Kelsey Perlman, a policy officer with the non-profit Carbon Market Watch.

"You don't want credits from some person claiming that he would have cut down the tree in his backyard, but promises to not do it if you pay him."